June 10, 2014

Global Cities Initiative

The Global Cities Initiative is a joint project of the Brookings Institution and JPMorgan Chase that aims to help metropolitan areas strengthen their international connections and competitiveness. The initiative recently held a forum in Phoenix. Curtis Reed, Jr., Market Manager for Arizona, Chase, spoke at the event and will tell us more about making the Phoenix area more competitive in the global market.

Ted Simons: The Global Cities Initiative is a joint project of the Brookings Institution and JPMorgan Chase, it’s an effort to help strengthen the global competitiveness of metropolitan areas. The initiative recently held a forum in Phoenix. Curtis Reed, Jr., Market Manager for Arizona, Chase spoke at the event, and he joins us now. It’s good to have you here.

Curtis Reed, Jr: The Global Cities Initiative is an initiative between JPMorgan Chase and the Brookings Institute to really have a goal of reaching 100 metro cities and developing a program, a strategy, around increasing exports within that city so that it can vitalize the economy, create jobs, and at this point we have actually 21 metros have signed up and then we have actually reached of 20 those 21.

Curtis Reed, Jr: Absolutely. I think everyone would agree that jobs are an important part of growing our economy and exports have become such a big part of that that it's almost- it's critical that metro areas participate in that.

Ted Simons: And you're talking global exports here for the most part or not?

Curtis Reed, Jr: Global mostly, right. So as we think about global trade, when you think about our partners obviously to the south of us, Mexico, North Canada, being natural but also trade whether it's with Europe or Asia, really across the globe.

Ted Simons: Are cities- Obviously the initiative is there for a reason, there can be some improvement. The cities not doing as much as they could along those lines?

Curtis Reed, Jr: Well, you think about our state at Arizona, you're the backbone has always been construction. It's been somewhat of a boom and bust from that perspective. So really, the goal is as we look at the economy, to increase the exports. If you look at really our exports in Arizona, they have declined over the last seven, eight years roughly 37% while the broader economy has actually improved by 75%.

Ted Simons: Why is that? What happened there?

Curtis Reed, Jr: Well there was a, I mentioned the real estate, tie to real estate, and so I think that sort of hid a lot of what you would normally see. And so when the downturn happened, I think it really exposed. Then there was a heavy reliance on computer and electronics industry. When that sort of tailed off, there was a dramatic reduction in the total exports.

Ted Simons: I know the state is awfully dependent on consumption as well. How do you shape the dependence, the Phoenix dependence, on construction, on consumption?

Curtis Reed, Jr: Well the goal of the initiative is really three things. We have dedicated 15$ million to the Brookings Institute to really help with this, is first you need the research and the data. So for Phoenix proper really the goal is let's come in, let's produce the data, let's agree where weaknesses are, where strengths are, and then let's convene our public and private partners to really come together, share ideas, talk about sort of common themes. Then like anything else it's about the execution. So let's have an exchange to talk about those ideas and then build a strategy that we all can agree on and hold ourselves accountable to.

Ted Simons: Has the execution in other urban areas, municipalities, are they models that Phoenix can look at, are they models Phoenix can say we don't want to be a part of that, what’s going on out there?

Curtis Reed, Jr: That's the beauty of not being first. And so we have seen a number of cities, Chicago, San Diego, Dallas, that have actually entered into this and we're able to look at those models and determine what are some of the common things or things that we can learn as a city, things that they didn't do or can do better.

Ted Simons: So how can Phoenix basically reposition itself as a center for the global economy, for global exports, the whole nine yards?

Curtis Reed, Jr: Well the first key, we talked a lot about this at the initiative, is we really need the business community to buy into this. That there's really benefit to thinking globally and thinking about the business and expanding it globally. And the only way to do this is through education and through sort of you know thoughtful analysis to show if they are able to increase their business through global trade that will then improve the bottom line, increase revenues, then there's benefits for the society as a whole is obviously job creation. And so on and so forth.

Ted Simons: That's interesting you say that that you have to get the business community to buy into this. I would think the business community would be jumping at this. Why would they not buy into this?

Curtis Reed, Jr: Well I think like anything else, I think what you don't know, perhaps, you don't know. So I think a lot of the comments we heard from some of the people at the Global Cities Initiative is they want more education around this. They want a better understanding. So it's not simple to say I want to do business in China. Well how do you do it? We're fortunate at JPMorgan Chase that we work with our clients constantly and advise them in terms of you know reaching other countries, or doing business in other countries. Really the initiative here is about education, teaching sort of what are some of the things out there, the tools, the resources that the business community can tap into, and then feel more confident that they can enter into a global competition.

Ted Simons: We talked about you know the high-tech bubble, if you will, construction, consumption, the challenges facing the Phoenix region. What are the region’s strengths?

Curtis Reed, Jr: Well the strengths are that there's a tremendous amount of people that continue to come to Arizona. I'm a perfect example of that. I'm 65 days in Arizona from Chicago.

Ted Simons: Really? Well welcome to summer in Arizona. Have a good time.

Curtis Reed, Jr: Thank you. Thank you. But the reality is you've got a tremendous draw, and that is what is needed actually to continue to be competitive as you want people coming into your state. The key is how do we then use those resources appropriately? We need to have jobs. We need to make sure that people want to stay here, that it's an area that they want to raise their children and continue to be prosperous.

Ted Simons: Response from the event, from the initiative, what are you hearing so far?

Curtis Reed, Jr: Excellent. Everyone that I have spoken to or have come up to me, the feedback has been tremendous, but I think there's a little cautious optimism. I think like a number of different initiatives it really comes down to the execution. So I think we have great framework but the key will be how will we -- what will our strategy be and then how will we execute it?

Ted Simons: Is the equation though a little different, moving the goal posts a little bit here in this area, because we attract so many people, because we had such a construction dependence, can you look much at an Atlanta or a Chicago or a San Diego? Is there that much to compare to?

Curtis Reed, Jr: Yes, I think so. I mean look, clearly there's a number of positives here that I talked about, which is a number of people coming here. But I think we can look at those cities and look at how are they currently partnering with other countries or thinking about global trade or what are some things that they have done historically to attract businesses to their states and their cities. I think we can learn a lot from those cities. I think it's important that we -- like the Global Cities Initiative actually, that's the benefit, because we can bring sort of that background and insight to Phoenix.

Ted Simons: All right, good stuff. Good to have you here. Thanks for joining us.

Curtis Reed, Jr: Thank you.

Ted Simons: And tomorrow on Arizona Horizon we will talk about new rules for power plant emissions and we'll hear about efforts to keep hungry people fed during the summer. That's tomorrow evening, 5:30 and 10:00, right here on Arizona Horizon. That is it for now. I'm Ted Simons, thank you so much for joining us. You have a great evening.

Phoenix Pension Measure

City of Phoenix voters will be deciding this fall on a measure to reform the city’s pension plan for employees. It would end the practice of boosting pensions by adding vacation and sick time, and would transition employees into a 401-K style plan. Tom Simplot, the co-chair of Phoenix Citizens for Pension Responsibility, which opposes the changes, will discuss the issue.

Ted Simons: Good evening. Welcome to "Arizona Horizon." I'm Ted Simons. Phoenix voters will decide this fall on a measure to reform the city pension plan for employees. Joining us now is former Phoenix City Councilman Tom Simplot, the co-chair of Phoenix citizens for pension responsibility, a group that opposes those changes. Good to have you here, thanks for joining us.

Tom Simplot: Hi Ted, thanks.

Ted Simons: This is a measure again, to reform the employee pension plan. Let’s talk about what the measure wants to do and find out why you're against it.

Tom Simplot: Well, from our standpoint it's not really reform, it’s more like elimination. Because what it really primarily does is shift the pension plan into a defined contribution plan. So that is a complete change from what we have today, which is a pension defined pension payout that people receive at the end of retirement. So we want to make sure that we educate the voters so that they understand that this actually will be a cost increase to voters and residents and that actually decreases the benefits to employees and at the end of the day it’s going to be wrapped up in litigation for years to come.

Ted Simons: As far as the cost is concerned I understand that I think most folks expect maybe a bump early but I think the argument is the bump goes away in time. You say no?

Tom Simplot: Well, I would say look at how much time is involved. If it's 20 to 25 years, which is what the city studies have shown, we're talking about more than 400 million dollar cost that city taxpayers have to pick up one way or another. It’s either going to come through reduced services or it’s going to come through taxes like a food tax in the future.

Ted Simons: I want to get back to the 401-K style plan. The employee pension plan as it stands is under-funded by what $1.5 billion and only 56% of it is funded. Does it need reforming?

Tom Simplot: Well, the irony is we have already done a lot of reform with the cities’ pension plan in the past few years. Were there abuses with the cities’ pension plan, like any of the pension plans across America, I think probably that's true. Did we reform it? Yes we did. Starting with a year ago, more than a year ago city voters approved pension reform saving almost $600 million over the next 25 years. The city council last summer then passed more pension reform saving another $280 million over the next 25 years. Then just recently the past few weeks the current city council approved employee contracts saving more than $60 million over the next 20 years. If we want to talk reform, reform has occurred. They have limited the pension spiking that everybody loves to talk about and they have actually changed the dialogue and the course of how we compensate our employees.

Ted Simons: The new plan eliminates pension spiking? This reform idea? This initiative?

Tom Simplot: This initiative doesn't do anything about pension spiking. That's already been done Ted. That's the irony of their message. We have already accomplished the true reform. What theirs does is simply shift it from one sort of pension plan to a 401-K sort of plan.

Ted Simons: The 401-K plan again what they say, this is a more sustainable plan and it's a more fair plan in the long run. Your response.

Tom Simplot: I think you have to look at the numbers. If you look at the numbers that the city has produced through an independent consultant we see that the net increase to the taxpayers will be $400 million. How they are able to argue that they are actually saving money over the next 25 years is they’re actually using savings from deferred compensation that is not even a part of this initiative.

Ted Simons: You're saying --

Tom Simplot: It’s a Bait and switch.

Ted Simons: We gotcha, but you're saying $400 million say cost here initially until the bump, as we mentioned earlier, goes away. What if this does not pass? How much will the city be on the hook for? Is it going to be more than $400 million?

Tom Simplot: Oh, no. We already see those cost savings coming into play so I’m glad you asked that question. Over the next 25 years, we're going to see almost $900 million in pension savings because of the reform that has already taken place. And if the initiative does pass that 400 million, that initiative, actually wipes out the savings that have already been passed by the voters.

Tom Simplot: It will eventually ease off, because remember what we did a year ago with voters we now have two tiers of employees, one tier of employees are those employees who were there before the voters approved the pension reform. They are gradually going to retire over the next 20 years. The new employees from over the past year, they actually pay more into the pension plan and don't have the perks that the old employees used to have.

Ted Simons: I know the transition costs, what you’re talking about here, among the bumps that we're talking about, those who are for this saying they say there are mechanisms in the initiative to address these transition costs.

Tom Simplot: That's the deferred compensation. That's where people get lost in the weeds. In order to actually pay for that $400 million transition cost they are banking on a city council or city manager actually taking away deferred compensation. That's not retirement. Deferred compensation is a part of the employee's compensation package, and that’s built into the employee union contracts.

Ted Simons: And again, regarding this new initiative what they are saying is that the city will see savings with the initiative from day one. Forget the transition costs, savings will start immediately. You say?

Tom Simplot: That's just not true. Read the initiative. I ask voters to read the initiative. That's why we formed this committee, to educate the voters about what this initiative really says and what it’s going to mean to their pocketbook as a taxpayer.

Ted Simons: Is there a chance though, and again I'm speaking for those who filed the initiative, they are saying that the concept of ballooning pension costs, we have seen it now, we're going to see it later regardless of what reforms have been made this type of 401-K style plan alleviates that.

Tom Simplot: And I think in response to that we need to look at what other states and cities have done who have tried to adopt the 401-K type of pension plan and have found that it actually has done just the opposite. For example, take a look at Detroit or Alaska. What they have found is that it actually ballooned much more which brings me back to the reforms that the voters and city council have already passed. We need to let those actually take effect and we'll see the benefit.

Ted Simons: Are there more reforms needed?

Tom Simplot: That may be. In my view, Ted, pension reform may be incremental, it may evolve over time. This isn't the answer. It took us 35 years to get to the point where we needed pension reform because we realize that abuses existed. It may take a while to unwind all of that but we have made great strides in just two years.

Ted Simons: Councilor Wearing says the most expensive course for the city to take right now is to continue what's being done. Your thoughts.

Tom Simplot: As if he's referring to the reforms that the voters passed and the city council has enacted, no.

Ted Simons: He’s basically saying doing nothing costs the most

Tom Simplot: No. Doing nothing – we’re talking about two different things. Stay the course, means stay the course that the voters have approved, stay the course that council has approved, stay the course with the employee contracts. We're going to see more than $893 million in savings over the next 25 years.

Ted Simons: All right, so you're saying that, what he says that's the most expensive course. You're saying not so.

Tom Simplot: That's not so.

Ted Simons: All right, we'll see what happens good to have you here.

Tom Simplot: Thanks, Ted.

Sun Corridor

The Sun Corridor is the region of Arizona made up of Phoenix, Tucson and areas north and south of the two major cities. Arizona State University’s Morrison Institute has released a new report about making the area more competitive globally and with other states. Dan Hunting, Senior Policy Analyst for Morrison and one of the report’s authors will discuss his findings.

Ted Simons: Arizona Sun Corridor is seen by many as an economic power waiting to happen. ASU's Morrison Institute is out with a new report on how to make the Sun Corridor more globally and nationally competitive. Dan Hunting is the Senior Policy Analyst for the Morrison Institute and one of the report's co-authors. Good to have you here, thanks for joining us.

Dan Hunting: Thanks for having me.

Ted Simons: The Sun Corridor, now correct me if I’m wrong, Prescott to Nogales or kind of something like that?

Dan Hunting: Kind of something like that. It’s- you can think of very fluid boundaries. Our world we often think of things in sort of political terms, out in Maricopa County or in Congressional District 7. We're looking at an economic model here. Economies are not so easily defined as that.

Ted Simons: So it’s basically- it's not necessarily a natural formation, it's a what you got for me formation.

Dan Hunting: It's actually a very natural formation that unlike political boundary where somebody sits in a room and decides this is going to be this City Council District; economic things like this grow up on their own accord, people just transacting business.

Ted Simons: So it is organic then?

Dan Hunting: Yes, absolutely!

Ted Simons: Okay, how much of a player in the world, in the United States, right now is the Sun Corridor.

Dan Hunting: The Sun Corridor if you look at us as an agglomeration of that Phoenix to Tucson and surrounding areas, it puts us almost in a top 10 market in the United States, as opposed to just Phoenix alone or maybe 12 or 13. It really bumps us up to the point where we're a big time player.

Ted Simons: And how do we become a bigger time player?

Dan Hunting: Well I think part of that is by leveraging the advantages you have of combining the two large economies of Phoenix and Tucson. There's a lot to be gained by looking at us as a combined economy.

Ted Simons: How do you do that, how do you push this regional thinking, this regional branding, if you will?

Dan Hunting: Well, branding is definitely a lot of it. We need to start thinking when we're looking to draw businesses here from out of state or from other places in the world; people aren't looking at Phoenix verses Tucson. If you're a German company looking to set up a manufacturing plant here they don't think about should I be in Phoenix or Tucson? They think should I be in L.A. or should I be in that desert place a little inland there.

Ted Simons: So with that in mind how do you get the cooperation, how do you get this idea of everyone working together?

Dan Hunting: Well I think it's just going to take a lot of creative thinking on the part of our leaders. They need to recognize that this is a real thing, it's really there, to consider what's happening 100 miles up or down the road in making those decisions.

Ted Simons: I know the Sun Corridor's strongest assets were addressed in the report. You mentioned geography as a natural asset. Talk to us about that.

Dan Hunting: Well, one of the things that people think when they first hear this concept of Phoenix and Tucson as a combined economy is they immediately see a nightmare scenario of a sea of red tile roofs stretching down I-10. That will never really happen because of our geography here. We have a large percentage of the land, about 60% of the land in the Sun Corridor, is actually protected in one way or another. It's national forest or tribal lands, BLM lands. So what makes the Sun Corridor unique is we have got this large, dense urban population with these wonderful protected lands nearby. So that's a real strong point for us I think.

Ted Simons: Okay, Another strong point I think that you mentioned in the report at least, it was certainly an influence in the report, is demographics. Impact on the Sun Corridor.

Dan Hunting: Yes. Well, there's sometimes an image that Arizona is an old state, that we think of Sun City and things like that. We actually have a nice advantage that we have, a strong young population. We have a lot of young, eager workers that are ready to get in and do the work that we need to grow this economy. The difference, of course, is that many of them are Hispanic and we need to figure out how to educate that population and get it to really participate fully in our economy.

Ted Simons: Okay, those are the Sun Corridor's greatest assets. What are the Sun Corridor’s greatest challenges?

Dan Hunting: That's a good question. I would say our greatest challenge is to continue in sort of old school thinking and look at provincially what's good for Tucson, what's good for Mesa, what's good for Phoenix, and not look at this as a whole entity.

Ted Simons: How do you do that? How do you get that mindset changed?

Dan Hunting: That’s going to be tough, that’s going to take a lot of creative thinking by people that are going to need to think outside of the box and reach across the aisle and across the city boundaries there to look at a larger picture.

Ted Simons: Major competitors right now for the Sun Corridor, what are we looking at here?

Dan Hunting: Well you're looking at certainly Denver, the Front Range area, and Atlanta, places like that. What happens when we move up to this larger stage is we end up competing with those larger players. It's an advantage especially if you look at a place like Tucson.

Ted Simons: Compare us to the Front Range, the Denver area.

Dan Hunting: The Sun Corridor economy is actually larger than the Front Range economy. The Sun Corridor economy is actually larger than the entire states of Idaho, Montana, Wyoming and New Mexico combined. I think a lot of people sort of think of us as still this big city but not that big. The Sun Corridor economy and the Sun Corridor population is really, really large. It's the largest in the intermountain west.

Ted Simons: Okay, so with that in mind, and I remember hearing about the Sun Corridor years ago, before the recession if you will. It seemed like everyone was talking Prescott to Nogales, or some points close there, and we're going to be a superpower in 10 to 15 to 20 years from now. What happened?

Dan Hunting: Well what happened obviously is the economy crashed. I think that that casting of it as the Sun Corridor is going to be something that happens in the future, I think that was a miscalculation. My argument has always been the Sun Corridor exists now whether we like it or not. It's a matter of acknowledging that realty of what's really there.

Ted Simons: So, with that in mind last question, what do we take from this report on the Sun Corridor?

Dan Hunting: What we take from this report is we get together; we act as a global player, and not just think of ourselves as a local provincial player.

Ted Simons: And we can do that from this southwest area where really the- Mexico is the closest international partner?

Dan Hunting: I think Mexico is a key part of this. Our data tends to sort of stop at the Mexican border, but just as the Phoenix economy bleeds over into Mesa and Tucson, the Arizona economy bleeds down into Tucson and Mexico. So that's a key part of our economy that we need to capitalize on.

Ted Simons: Well all right, very interesting stuff. Let's hope we hear more about the Sun Corridor, not have that big old dark period when we didn’t hear about it too much at all. Good report. Interesting stuff. Thanks for joining us.